Sharing office space is an increasingly attractive and flexible solution to high rents and employee wellbeing – and, according to Darren Rogers, it is going to help shape how we work and live in the future
Co-working is continuing to gain momentum as businesses look to meet the demands of a changing workforce. Originally the preserve of start-ups and entrepreneurs, co-working is now being considered by more and more corporate organisations as a way to create and promote a more innovative and flexible workplace.
It is clear that momentum currently generated by co-working is symptomatic of a more holistic approach to a traditional view of the built environment. Property assets now have to work harder in terms of connectivity, amenity and flexibility to meet the demands of the next generation of our workforce.
The concept of co-working is not new, but it tends to mean different things to different people. It is important to understand what co-working is and to be aware of some of the legal and operational issues that arise in a co-working environment.
What is co-working?
The Oxford English Dictionary defines co-working as “the use of an office or other working environment by people who are self-employed or working for different employers, typically so as to share equipment, ideas and knowledge”.
However, unlike traditional office space, co-working specialist providers generally offer space on an individual or business membership basis.
Key to the success of co-working is the unique layout of the space. Co-working tends to suit a more compact floorplate, which lends itself to member interaction. There will also be specific quiet areas set aside for more focused work, and to conduct meetings and take telephone calls in private. Often co-working providers will offer a package of additional services and amenities as part of the membership. The aim is to create a vibrant interactive working atmosphere with excellent facilities.
Co-working began with freelancers, entrepreneurs and the tech and creative industries, who were looking to share ideas and so accelerate innovation. However, more traditional corporate organisations are beginning to embrace co-working. The member-based nature of the co-working model means companies can use the space on demand as and when required to bring different parts of their global mobile workforce together. In the aftermath of the Brexit vote, many UK corporates will be concentrating more closely on efficient use of workspace and will be looking for solutions that allow flexibility, and use space more productively, to adapt to changing occupier needs.
What are the key benefits of co-working?
Matthew Brown, a senior director in the real estate department for WeWork in London, emphasises how WeWork seeks to create “we” space rather than “me” space.
As one of the major providers of collaborative, community-driven workspaces, WeWork has 10,000 members in London alone and is well established in locations around the world. Other players in the market include Regus and The Office Group.
The benefits of co-working are well known and much has been written about the advantages of collaborative working. As well as the obvious networking opportunities, individuals can openly share ideas to encourage innovation and creativity. As a result, businesses may see productivity increase and, by enabling employees to interact and feel part of a community, job satisfaction may also improve. Mobile technology is continually advancing and is now an everyday part of working life. As the workforce becomes more tech-savvy the idea that you can work in any place at any time is becoming the norm, and the ability to utilise space in a well-designed co-working environment can facilitate this.
Of course, one of the major reasons that businesses are considering co-working spaces is that it is flexible and affordable. It is possible to take space in more expensive locations where market rents would typically be significantly higher than the cost of a co-working membership. Brown says that he likes to think of WeWork as a matchmaker, finding the perfect match between occupiers and space.
As the space is managed by the co-working provider, the members are relieved of maintenance obligations and can share the cost of utilities and other service costs meaning it can be a very cost-effective option.
Legal and operational issues
The idea of purchasing a membership to share working space is very different from entering into a lease of office premises. Co-working spaces will normally operate on short-term membership contracts. This offers more flexibility than a lease, which would commonly be for a fixed term of five years or more. In addition, a tenant of a lease must pay a market rent, which is often subject to upwards only rent review, and has responsibility for the repair and maintenance of the premises. Even if a tenant can negotiate a break option it is by no means certain that the option can be successfully exercised.
Instead, co-working members are given a licence to use space either on a first come first served basis, or they may have specific desks or office space allocated to them.
The lease/licence distinction is important. If an occupier is given exclusive possession it will have a lease. This attracts security of tenure under Part II of the Landlord and Tenant Act 1954. Therefore the co-working licence should be drafted so that members do not have exclusive possession of any part of the space to avoid any argument in the future that they may have acquired security of tenure.
Following the referendum decision to leave the EU there is a question mark over continued funding for new UK ventures and so start-ups may be less keen on the long-term commitment and inflexibility of a lease. However, landlords can still take advantage of the co-working phenomenon by letting space to the co-working providers instead. An established provider should be able to demonstrate good covenant strength and will be more likely to enter into a longer-term lease, as this fits their business model.
Landlords who are letting space to co-working providers should become comfortable with the fit-out specification at an early stage. Other issues to consider are the tenant’s signage and brand specific requirements, which may affect other occupiers of the building. Landlords should also bear in mind that co-working revenue comes from membership fees and therefore profits may fluctuate depending on the number of members at the location at any one time. This could have implications if rents rise at rent review or on lease renewal.
However, while there may be some concern that members on short-term contracts may be fickle and change location on a whim, evidence suggests that members are actually pretty loyal. Co-working space often includes a number of additional value-added services which draw in and keep members in a particular location and this has the added benefit of generating additional revenue.
Privacy and security
The suitability of co-working for any organisation will depend on a number of factors. For example, it will be important to consider how any confidential information will be protected in a communal environment. Security of both data and personal possessions will also need to be addressed. Cybercrime is on the rise and so IT infrastructure must be secure. If the nature of the business means that a high level of privacy is required then the co-working model may not be the best option.
It is also worth remembering that not all co-working spaces are equal. The terms of the membership agreement should be analysed to see what is and is not included in the membership fee, the effect of any disclaimers or exclusions of liability by the co-working provider and on what basis the agreement can be terminated.
These are just some of the key legal and operational issues that should be addressed with the professional co-working providers to find a successful co-working solution.
What does the future hold?
As the popularity of co-working increases, more landlords with surplus space will consider entering this market. While it is possible to go it alone, there are distinct advantages to be gained by partnering with a specialist operator who can provide the necessary expertise in terms of design and management of the space.
Helen Berresford of Sheppard Robson Architects LLP thinks that the future will be less about standalone office blocks and more about neighbourhoods created by a network of engaged businesses. Companies looking for co-working space will be looking at the characteristics and benefits of their workplace “neighbourhood” as well as the services that their space can provide.
WeWork has recently embarked on providing shared living space by launching WeLive last year. This could be the platform for bringing co-working and co-living space together.
It seems that we are not far away from being able to live, work and socialise without setting foot outside the door.
Darren Rogers is a real estate partner at Ashurst
Debate the key issues around our changing offices, the demands of modern occupiers and what employees want, at EG’s Workplace Summit on 23 November 2016. for booking details, visit: http://bit.ly/2cPHIfQ
